Corporate Governance Archives - MULTI-ACT

Anyone reading a company’s financial reports should be aware of the assumptions and estimates used by the preparer of the report because it can lead to a distorted picture of a company’s performance

In this article, Multi-Act experts analyze the financial reports of a major airline company and uncover key assumptions in calculating yearly pension cost. In this case, higher assumption of expected return can lead to lower pension expenses and higher earnings. Assumption relaxation in revenue recognition was observed by another major airliner thus boosting revenues and earnings in their reporting period.

Investors need to pay close attention to assumptions and estimates that may be used by the preparer of any report. The examples of these airline companies give a clear picture of how assumptions can be used to project companies in better light.

“Figures often beguile me…particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics.” – Mark Twain

Had Mark Twain seen the financial statements of various companies, he would have exclaimed- “Lies, damned lies, statistics and accounting”.

Ever made an investment decision based on market hype? Multi-Act experts review a Chinese e-commerce company headed by a celebrated personality that appears to be outdoing its competitors. While the company seems to be a victor; a careful quality of earnings analysis by our team reveals some creative accounting practices that investors should not ignore. Analysis includes the company’s:

Adjusted Non GAAP EBITDA and Net Income

Capital Allocation

Low Tax Rate Sustainability

USD Denominated Debt

Questions arise about the said company’s profit margins, cash-flows and valuation. Read how this can impact investor decisions.

A well-known peer-to-peer lending company, which came out with an IPO in 2014, has a $2.7 billion market cap. The company operates an online platform that enables borrowers to obtain a loan, and permits investors to purchase notes backed by payments made on loans.

Investors invest in the stock market based on the odds of reward and risk, but the odds are not always easy to calculate. Multi-Act’s Quality of Earnings analysis is utilized to judge the congruence between the economic earnings of the firm and the integrity of its balance sheet. Read More

In our research coverage, we came across one company which is one of the largest manufacturers of transformer oils and conductors in India/World. Based on both Return on Equity (RoE) and Return on Capital Employed (RoCE) the business seemed to have generated reasonable returns (average) over the long term. Read More

While analyzing a company engaged in a pharmaceuticals industry, we came across some important points concerning some notable issues on quality of earnings and corporate governance. The below note explains our findings on the same. Read More

Given that the fundamentals in the agricultural sector appear stable and the sharp rise in the use of renewable fuels across the world, market participants seem to be positively biased towards stocks that are part of the “agricultural story”. But, as always, at Multi-Act, we believe that following the herd and placing bets on stocks that enjoy a pro-cyclical review is futile if one does not also cast an eagle’s eye at the quality of the company’s financials. Read More

In recent years, large multinational companies have grown their operations across global markets. Hence, these companies end up dealing in a mixed currency, commodity and regulatory environment. Owing to this, global businesses often try to hedge currency risk with derivatives. Read More

Lately, a lot of market participants are becoming skeptical about zero interest rate policies. This is particularly reflected in retail investors’ tendency of reaching for high yield (HY ETF inflows/popularity) and the incentive to the CEO community for related buybacks/acquisitions to boost reported performance during their tenure. Read More

In the news recently for the wrong reasons and free falling stock price, this company, one of the top steel makers in India, came up our research radar a couple of years ago (Sep 2012 to be precise) when one of our institutional clients had requested us to analyse it (based on specific issues concerning its balance sheet). Read More